The embattled leaders on Wall Street started the day today with the promise that comes with the dawn of a new month and a new quarter—time to start over yet again with a clean slate and with their remaining troops ready and able to pounce on any sign of a rebound.

Unfortunately, the first trading day of June has brutally shattered that optimism.

Financial stocks dragged the broader markets down today after Standard & Poor's downgraded its ratings on debt from Lehman Brothers, Merrill Lynch, and Morgan Stanley. That news brought the shares of the investment banks into the same negative territory as those of the commercial banks, which were already hammered by news of leadership changes at both Wachovia and Washington Mutual.

S&P called the outlook for the large financial institutions "mostly negative," and it expects the banks to report even more write-downs on their assets. In addition to cutting the ratings on the three banks, S&P lowered its outlook on Bank of America and J.P. Morgan Chase, and it indicated it may also downgrade Wachovia.

Many investment banks, including Lehman, Morgan Stanley, and Goldman Sachs, will report earnings in the coming weeks for the quarter that ended last week. While there were signs that the credit market had begun to loosen a bit in April, Wall Street's fiscal quarter included the month of March, which was particularly hard for markets as the Bear Stearns debacle unfolded.

Despite banks' proclamations that their capital raising efforts have effectively bolstered their balance sheets, most analysts still expect the banks to report more write-downs and raise even more new capital.

Expectations are particularly low for Lehman, which has been desperately trying to quell rumors that it could face the same fate as Bear Stearns, as some investors have raised questions about its financials. Its chief financial officer has indicated that the second quarter was tough and that more write-downs will be forthcoming.

Of course, in this day and age of magical accounting and inventive asset valuation, the lower credit ratings could end up having a positive effect for the banks on earnings day. Bloomberg News reports today on the sheer insanity of a new accounting rule that has paved the way for the biggest banks to book nearly $12 billion in revenue from the declining value of their bonds. They effectively argued that if they were expected to mark their assets to market value, they should be able to mark their liabilities as such as well. When their bond prices fall, the banks can realize "savings" on their liabilities.

Equity investors, however, will need a bit more convincing. Shares of Lehman fell nearly 7 percent in afternoon trading, while Merrill and Morgan were off 3 percent.